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IFRS 15 Property development obligations

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IFRS 15 Property development obligations – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

This is an example for illustrating the concepts in ‘What is a good or service that is distinct?’

The scenarios in the following example demonstrates how two transactions which … Read more

Performance obligations construction industry

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A construction contract may, in theory, be broken down into many promises that may need to be accounted for separately, the performance obligations construction industry. However, the contract for the construction service can continue to be accounted for as one performance obligation if the contractor can demonstrate that: Performance obligations construction industry

  • it will provide a significant integration service; Performance obligations construction industryConstruction industry performance obligations
  • the goods or services significantly modify or customise other goods or services promised in the contract; or
  • the goods and services within the contract are highly dependent on or integrated with other goods or services i.e. not distinct. Performance obligations construction industry

Given the integrated nature of contracting activities and that goods and services … Read more

Construction contracts disclosures

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Construction contracts disclosures provides a start to think of what and how to report construction contracts under IFRS 15. And it is more than before. IFRS 15 includes additional qualitative and quantitative requirements on construction contracts disclosures which were not included within IAS 11.

Many of these disclosure requirements are narrative in nature. IFRS 15 refers to qualitative and quantitative disclosures, and the more significant disclosures introduced include the following.

  • An entity discloses information about its contracts with customers to help users understand the amount, timing and uncertainty of revenue and cash flows from contracts. This includes dis-aggregation of revenue (for example, by geography, market, contract type) to assist users in meeting their objective. In addition, reconciliations
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Construction contract modifications

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Construction contract modifications – Ever heard of a constructing a major new building, large bridge, metro railway or other significant construction project without contract modifications? Especially in the large urban agglomerations in this world….. Well then look at this: Construction contract modificationsConstruction contract modifications Construction contract modifications

And technology initiatives to avoid it: Artificial intelligence (AI)

How to account for variations and claims under the construction contract?

IFRS 15 does not include explicit guidance on accounting for contract variations and claims. Instead, it includes general guidance on contract modifications and other changes in the transaction price, which applies to all industries. [IFRS 15 18–21] But it works…. Construction contract modifications


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Construction Variable pricing

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Construction Variable pricing is about a thing that happens quite a lot in the construction industry. Additions, extras, deletions, you name in construction they use it….

How to measure construction contract revenue: variable consideration – variable pricing?

If the consideration promised in a contract includes a variable amount, then an entity estimates the amount of consideration to which it expects to be entitled. Consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. [IFRS 15 50–54, IFRS 15 IE 101 – 108  Example 20 and Example 21]

To estimate the total variable contract price, an entity uses one of the following methods to estimate the … Read more

Construction contracts revenue over time or at a point in time?

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Construction contracts revenue over time or at a point in time? – In the this has been a enthusiastic discussion back and forth, and that is what it still is….

The rule: If the contract arrangements do not permit revenue to be recognised progressively, then revenue is recognised at a specific point in time on transfer of control, which for a construction contract will likely be close to completion.

The explanations: Should a contractor recognise revenue as construction work takes place or on practical completion?

While IFRS 15 was under development, a key concern of the construction industry was whether contractors would continue to recognise revenue as the contract progresses, similar to the stage of completion method … Read more

Construction contracts computations

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Construction contracts computations

Construction contracts computations explains some newer features in IFRS 15 such as contract reporting lines and their computations as examples.

As part of the replacement of IAS 11 Construction contracts, IAS 18 Revenue and related interpretations by IFRS 15 Revenue from contracts with customers the presentation and disclosure regarding construction contracts has significantly changed.

The good news for contractors is that the progressive revenue recognition similar to current stage-of-completion accounting is largely retained for many long-term construction contracts. Therefore, in their Financial Statements 2018, contractors have found that applying the new standard to a traditional construction contract results in an accounting outcome broadly similar to IAS 11.

Nevertheless, the devil is in the details. IFRS 15 introduced Read more

Provision matrix in the simplified approach

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The provision matrix in the simplified approach is used for financial assets of little complexity and in a non-complicate operation environment, where it is common sense to use.

Forward looking

For short term trade receivables, e.g. trade debtors with 30-day terms, the determination of forward looking economic scenarios may be less significant given that over the credit risk exposure period a significant change in economic conditions may be unlikely, and historical loss rates might be an appropriate basis for the estimate of expected future losses.

Provision matrix in the simplified approach

A provision matrix is nothing more than applying the relevant loss rates to the trade receivable balances outstanding (i.e. a trade receivable aged analysis). For example, … Read more

Revenue from maintenance services

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Revenue from maintenance services – Entities may provide maintenance services such as telephone support, bug fixes and unspecified upgrades or enhancements on software-enabled products.

Under earlier IFRS, these maintenance services were often treated as a single component (combined with other goods or services). These services are commonly referred to as post-contract support (PCS), and are not unique services contemplated or defined in IFRS 15. Revenue from maintenance services

As a result, entities must evaluate whether the individual services that comprise what is considered PCS under US GAAP are a separate performance obligations. For example, a technology entity may conclude that the promise to provide unspecified future upgrades and enhancements is a promised good or service in the … Read more

Construction warranties

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Construction warranties – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Construction warranties Construction warranties Construction warranties Construction warranties 

Warranties may fall into several categories. If the contractor provides the customer with the option of purchasing the warranty separately, the warranty should be treated as a distinct performance obligation, and a portion of the transaction price would be allocated to it. Likewise, if the warranty provides additional services (such as a certain number of years of maintenance), that service component qualifies as a distinct performance obligation, and a portion of the transaction price would be … Read more